PUBLIC GOODS AND CONTINGENT VALUATION ROBERT SUGDEN pot

5 Public Goods and Contingent Valuation Public Goods and Contingent Valuation ROBERT SUGDEN ROBERT SUGDEN 5.1. PUBLIC GOODS Many applications of the contingent valuation (CV) method are concerned with public goods. This chapter considers some of the special problems involved in eliciting preferences for such goods. In economic theory, the distinction between public and private goods is clear-cut. What is now the standard deWnition of a public good derives from a classic paper, only three pages long, by Paul Samuelson (1954); this encapsulates some of the key elements of a tradition of public Wnance which can be traced back to Lindahl (1919/1958) and Wicksell (1896/1958). The deWning characteristic of a public good is that the same units of the good are consumed by, or give utility to, more than one individual. For example, consider the beneWts that the residents of a suburban area derive from an expanse of open-access woodland. One way of modelling these beneWts would be to deWne a go od, `open-access woodland', measured in hectares. A typical resident, we may assume, prefers more of this good to less, just as she prefers to have more rather than less of private consumption goods, such as food and clothing. But there is a crucial di Verence between food and clothing on the one hand and the woodland on the other. In relation to food and clothing, individual consumers are rivals: if any given unit of one of these goods (say, a particular packet of frozen peas or a particular coat) is consumed by one person then, necessarily, it is not con- sumed by another person. In contrast, in the case of the woodland, there is non-rivalry: each hectare of woodland is giving beneWts to many people simultaneously. Thus, when we specify the utility functions of a set of individuals, the level of provision of each public good is repres ented by a single varia ble, which is an argume nt in each individuals' utility function, while the level of consumption of each private good is represented by a separate variable for each individual. This chapter was written as part of a research project supported by the Economic and Social Research Council, through its Transport and the Environment Programme (Award No. W 119 25 1014). Thanks go to Ian Bateman, Alistair Munro, and Chris Starmer for their help. At Wrst sight, it may seem odd that the theoretical distinction between public and private goods should be so categorical. Isn't there a continuum stretching from almost pure private goods (such as frozen peas) to almost pure public goods (such as national defence)? The answer is that Samuel- son's distinction between public and private goods is not so much a classiW- cation of goods as a classiWcation of ways of modelling them. Indeed it is often possible to choose whether to model a given source of beneWts as a private good or as a public one. Take the case of the woodland. In an informal sense, open-access wood- land in a suburban area is not a `pure' public good. Beyond a certain point, the more visitors there are to a wood, the poorer is each visitor's experience. Thus, one might say, visitors are rivals. But this factor can be incorporated within a model in which woodland is a public good in Samuelson's sense. The eVects of congestion come through as properties of individuals' valua- tions of the public good; one of the reasons why an increase in quantity (i.e. an increase in the area of woodland) is valued is because this reduces congestion. However, the same real-world state of aVairs could be modelled, with equal legitimacy, in private-good terms. We could deWne `visits to woodland areas' as a good, measured in (say) numbers of visits per year. Visits to woodland are private goods, even if there is open access: each visit is made by a particular person. In this framework, an increase in the area of woodland would appear as an improvement in the quality of the good `visits', and thus as an outward shift of the demand curve for that good. Whether a given source of beneWts should be analysed as a public good or as a private good is a question of modelling strategy. If we wish to elicit individuals' valuations of some beneWt, we can often choose between alter- native ways of setting up the problem; some ways of setting it up call for valuations of private goods, others for valuations of public goods. In the case of the woodland, for example, we might try to elicit valuations of the private good `visits', perhaps by asking people about their willingness to pay diVerent hypothetical entry charges, or (if they travel to the woodland by car) diVerent charges for parking. The strategy of valuing visits has some obvious limitations: it fails to pick up some of the ways in which individuals derive beneWts from woodland. Expanses of woodland make a suburban area look more attractive, and this can be a source of beneWt even to residents who never set foot in a wood. But these beneWts, too, can be valued through private goods. If what people value is the amenity beneWts of having trees near their homes, then it is equally true to say that they value homes that are near trees. Here we can try to Wnd out how much extra people are willing to pay to buy or rent houses in wel l-wooded areas. This could be investigated either by using a hedonic pricing method (i.e. identifying diVerences in market prices for houses in diVerent areas) or by using a CV survey to elicit individuals' housing preferences. 132 ROBERT S U G DEN However, the more diVuse the nature of the beneWt, the more diYcult it becomes to Wnd an appropriate private good. An extreme case is the exist- ence value that a person may derive merely from the knowledge that some- thing ± a wildlife habitat, a landscape, an historic monument ± exists. One of the apparent strengths of the CV method is that it can be used to elicit preferences both for private and for public goods. This chapter will be concerned with applications of the CV method to public goods. 5.2. THE THEORY OF PUBLIC GOODS For the purposes of exposition, it is convenient to start with a very simple model in which there are just two goods, one private and one public. The public good is supplied under conditions of constant costs; the cost of supplying each unit is p. There are n individuals, labelled by i  1; F F F ; n, each of whom consumes the quantity y i of the private good. The quantity of the public good is x; this quantity is consumed by, or is made available to, every individual. Thus individuals' preferences can be represented by the utility functions: u i  u i x; y i  i  1; F F F ; n: 5:1 Preferences over combinations of public and private consumption are assumed to have the conventional neo-classi cal properties; thus, each per- son's preferences can be repres ented by a family of smooth, strictly convex, downward-sloping indiVerence curves in (x; y i ) space. I shall also make the very weak assumption that the private good is a normal good. For any individual i, we may deWne the marginal valuation of the public good as vx; y i , wher e vx; y i   @u i = @x= @u i = @y i  i  1; F F F ; n: 5:2 Thus, starting from any given bundle (x; y i ), the value of vx; y i  represents the individual's valuation of a marginal increase in the quantity of the public good, expressed in units of the private good. If the private good is treated as the nume  raire (i.e. if quantities of the private good are measured in money units), vx; y i  can be interpreted as the individual's willingness to pay (WTP) for a marginal increase in the quantity of the public good. Since the private good is normal, vx; y i  is decreasing in x. Since more of each good is preferred to less, vx; y i  is strictly positive for all values of x and y i . It is easy to see that Pareto eYciency will be achieved if and only if  i vx; y i   p: 5:3 That is, the sum of all individuals' marginal valuations of the public good must be equal to the marginal cost of that good. If the sum of marginal PUBLIC G O ODS AND CONTINGENT VALUATION 133 valuations was greater than marginal cost, it would be possible to make everyone better oV by increasing the quantity of the public good and divid- ing the extra cost between individuals in proportion to their marginal valuations. Conversely, if the sum of marginal valuations was less than marginal cost, it would be possible to make everyone better oV by reducing the quantity of the public good and distributing the cost saving between individuals in prop ortion to marginal values. Unfortunately, market economies contain no mechanisms which can be relied on to ensure that (5.3 ) is satisWed. Under conditions of constant costs, competitive Wrms will sup ply a good at a price e qual to its marginal cost; thus, p may be interpreted as the competitive market price of units of the public good. In a market economy, the public good will be supplied only to the extent that it is bought by individuals. Thus, we need to ask how much of it would be bought at the price p. One apparently natural assumption is that each person maximizes utility, taking as given both the price of the public good and the quantities bought by all other individuals. I shall call this assumption parametric instrumental rationality. `Instrumental' signiWes that the individual treats her choices among goods as means, her ends being given by her preferences over Wnal outcomes. `Parametric' signiWes that she treats other people's decisions as given, rather than seeing herself as engaged in strategic interaction with those other people. Consider the implications of this assumption. For each person i, let z i be the value of i's endowments, and let w i be the total quantity of the public good bought by people other than i (i.e., w i   jTi z j À y j =p). Then i faces two budget constraints: px À w i   y i  z i 5:4 and x 5 w i : 5:5 The market is in equilibrium (analogous with a market-clearing equilibrium in a private-good economy) if x and y 1 ; F F F ; y n are such that, for each person i, the combination x; y i  maximizes i's utility subject to the constraints (5.4) and (5.5 ). In such an equilibrium, the following must be true for each person i: either vx; y i   p and x 5 w i 5:6a or vx; y i  < p and x  w i : 5:6b Condition (5.6a) is the case in which i buys just enough of the public good to ensure that marginal valuation is equal to price. Condition (5.6b) is the case in which, even if she buys none of the good, marginal valuation is less than price; in this case, the utility-ma ximizing solution is to buy nothing. It is immediately obvious that, if the Pareto-eYcient solution requires any positive quantity of the public good to be supplied, Pareto eYciency cannot 134 ROBERT S U G DEN be achieved consistently with (5.6a) or (5.6b) being true for all persons i. Since vx; y i   p for any person i who chooses to buy any of the public good, and since vx; y i  > 0 for all i, the sum of vx; y i  across all i must be greater than p; and this is incompatible with the Pareto-eYciency condition (5.3). If in equilibrium the publ ic good is supp lied at all, the sum of indivi- duals' marginal valuations of the public good will be greater than the good's marginal cost. Thus, the implication of this model is that if the supply of public goods is left to the market, there will be undersupply. Intuitively, the source of the problem is easy to see: each individual buys the good (if at all) with a view to the beneWts to herself; but each unit that any individual buys supplies beneWts to all individuals. 5.3. INCENTIVE COMPATIBILITY: THE THEORETICAL PROBLEM Welfare economists have generally argued that public policy should aim at achieving Pareto eYciency in the supply of public goods. The problem, then, is to Wnd a procedure for discovering enough about individuals' preferences to allow us to identify Pareto-eYcient levels of provision for public goods. Samuelson was pessimistic about the prospects; in a section of his classic paper with the title `Impossibility of Decentralized Solution', he argued that no decentralized pricing system could identify Pareto-eYcient solutions because `it is in the selWsh interest of each person to give false signals, to pretend to have less interest in a given collective consumption acti vity than he really has' (1954: 338±9). Subsequent theoretical work has shown that this problem is slightly less intractable than Samuelson thought. Clarke (1971), Groves (1973), and Groves and Ledyard (1977) have proposed a demand-revealing mechan- ism for public goods which tailors each individual's tax payment to his preferences as reported by him. The essential idea is that each person is invited to `vote' by reporting his WTP for a public good; the supply of that good is then set at a Pareto-eYcient level, relative to the reported preferences of all voters; Wnally, each voter is required to pay a tax equal to the marginal net cost that he has imposed on other individuals by voting rather than abstaining. Under reasonable assumptions about preferences, this mechanism can be shown to be incentive-compatible ± that is, no indi- vidual can beneWt by misrepresenting his preferences if no one else is misrepresenting theirs. Unfortunately, however, the demand-revealing mechanism is very vulnerable to strategic behaviour by small coalitions of voters, and for this reason probably cannot be regarded as a practical proposal. In any case, it is clear that Samuelson's claim about the `impossibility of decentralized solutions' applies to CV: if the CV method is used to elicit PUBLIC G O ODS AND CONTINGENT VALUATION 135 individuals' preferences for a public good, and if the Wndings are then used to determine the supply of that good, then each individual typically has a selWsh interest in giving a false signal. To see why, consider a simple case in which a collective decision has to be made between two options ± either not to supply a particular public good (option A) or to supply it (option B). If the good is supplied, it will be paid for from taxes; each individual's share of the increase in tax will be independent of how he or she responds to the CV survey. Assume that each individual has preferences of the kind described in Section 5.2. After taking account of taxes, each individual must either prefer A to B, or prefer B to A, or be indiVerent between the two. Now consider what response it would be rational for a self-interested individual to make to a CV survey. Subject to her response being credible, the larger the WTP a person reports, the more likely it is that B will be chosen. Thus if she prefers B to A, her best strategy is to report the highest WTP that would be credible. Conversely, if she prefers A to B, her best strategy is to report the lowest WTP that would be credible. Some commentators have suggested that CV respondents believe that the responses they make as individuals may determine the tax payments they make as individuals, and that this discourages the overstating of WTP (Hoehn and Randall, 1987; Mitchell and Carson, 1989: 153±70). It is possi- ble that some respondents do believe this; but since the belief is false, it would be unwise for CV researchers to count on it and unethical for them to try to induce respondents to hold it. I know of no CV survey in which individual responses have been used to determine individual tax payments. Furthermore, it is standard practice in surveys to assure respondents that the information they give will be treated anonymously. Any respondent who understands and believes this assurance must realize that she cannot be taxed according to her reported willingness to pay. It is sometimes implied that the CV method can be made incentive- compatible by using a referendum format, in which each respondent is presented with just two options and asked to report which she prefers. For example, the `Blue Ribbon' Panel on Contingent Valuation argues that the referendum format is preferable to the use of open-ended WTP questions, because the latter encourage the overstatement of true valuations as `a costless way to make a point' (Arrow et al., 1993: 29; see also Mitc hell and Carson, 1989: 148±9). The truth, however, is that any CV study which elicits preferences for a public good oVers respondents a costless way to make a point. It is important to distinguish between a real referendum and a CV survey which uses a referendum format. It is easy to see that if there are only two options A and B, and if a collective decision is to be made between them by majority voting, then no voter has any incentive to misrepresent her prefer- ences. But such a referendum will not elicit the distribution of WTP in the population, which is the whole point of the CV method. A CV study which 136 ROBERT S U G DEN uses a referendum format presents diVerent respondents with diVerent pairs of options, and uses the resulting data to estimate the distribution of WTP in the population. Thus, a respondent who understands what is going on has exactly the same incentive to misrepresent her preferences as if she had answered an open-ended question. For example, if she really prefers B (the public good's being supplied at its true cost) to A (its not being supplied), she should `vote' for the public good in a CV survey, whatever hypothetical cost she is asked to consider. I can see no escape from the conclusion that, if survey respondents are motivated solely by rational self-interest, the CV method is fatally Xawed. Like other forms of social-survey research, CV studies cannot work unless the vast majority of respondents can be relied on to give honest answers to well-formulated questions. But whether surveys elicit honest responses or strategic ones is ultimately an empirical question; it cannot be settled by a priori de duction from the axioms of rational choice theory. 5.4. INCENTIVE COMPATIBILITY: IS IT A PROBLEM FOR SURVEY RESEARCH? The possibility that responses may be self-interested rather than honest is not a problem that is peculiar to CV studies. Almost all social surveys oVer some incentives for strategic behaviour. Consider, for example, a survey of voting intentions before an election. A respondent who was motivated solely by rational self-interest might choose his answer by thinking about the eVects of the publication of the survey on other voters; thus, a suppo rter of party X might pretend to be intending to vote for party Y so as to induce complacency among the supporters of Y. Or consider a survey of the extent of unreported crime. If someone would like to see more public spending on the police, it might be in her interest to pretend to have been the victim of non-existent crimes. In these examples, of course, the self-interested beneWts to be gained by answering dishonestly are tiny. But the same is true of CV surveys, provided the sample size is suYciently large. In many social surveys, self-interest provides no obvious incentive to respondents to answer in one way rather than another. For example, this is typically the case in the censuses and panel surveys on which econome- tricians rely for their data. If respondents are motivated solely by rational self-interest, we have no reason to expect honest answers to such questions. Conversely, if there are forces at work whi ch can generate systematic hon- esty in the absence of positive incentives to be honest, the same forces might be expected to have some inXuence even when there are weak incentives to be dishonest. For example, it might be hypothesized that, other things being equal, honesty involves less cognitive strain than dishonesty, or that the social setting of interviewer and interviewee evokes norms of honesty. These hypotheses might explain honesty in the absence of incent ives; but PUBLIC G O ODS AND CONTINGENT VALUATION 137 they would also imply a tendency for respondents to give honest answers rather than strategic ones when the incentives for strategic behaviour are suYciently weak. Thus, when assessing the validity of the assumption that CV surveys elicit honest responses, it is legitimate to draw on evidence from social-survey research in general. Social psychologists have done a great deal of research into the relationships between attitudes (as reported in surveys) and actual behaviour. The balance of evidence, drawn from many studies, is that behaviour and attitudes are positively correlated (Schuman and Johnson, 1976; Hill, 1981). Of course, the mere demonstration of such a correlation is a relatively weak result, but attitudes are more remote from behaviour than the intentions into which CV surveys enquire. For example, compare the attitude `I agree strongly that the Government should spend more money on national parks' with the intention `If there were a referendum on the issue, I would vote for more spending on national parks.' Experimental psychology and experimental economics oVer another source of evidence. Many investigations of decision-making behaviour were Wrst carried out by asking subjects to make hypothetical choices, and have subsequently been replicated in settings with Wnancial incentives. In most cases, the same patterns of behaviourÐoften patterns that are incon- sistent with received economic theoryÐare found in both types of experi- ment. For example, this is the case for the preference-reversal experiments discussed in Chapter 6 (Grether and Plott, 1979; Slovic and Lichtenstein, 1983). Notice, however, that such similarities in patterns of behaviour across experiments does not imply that incentives do not aVect behaviour at all. For example, psychological eVects such as response compatibility and anchoring might come into play irrespective of incentives, and these might generate preference reversals (see Chapter 6), but subjects might still be more risk- averse in the presence of incentives. Further evidence comes from experiments which compare responses to hypothetical questions about willingness to trade with real trading behav- iour. Bishop, Heberlein, and their associates have carried out a series of investigations of individuals' valuations of hunting permits in cases in which these are strictly rationed (Bishop and Heberlein, 1979, 1986; Bishop et al., 1983; Heberlein and Bishop, 1986). A typical experiment is conducted with two random samples drawn from a population of applicants for hunting permits. Subjects in one sample are treated as in a normal CV survey: WTP or willingness to accept (WTA) is elicited by using hypothetical questions. Subjects in the other sample are oVered genuine opportunities to buy or sell permits. The results are mixed, but the general picture seems to be that hypothetical responses overstate real WTP and WTA. In one typical case, mean hypothetical WTA was $101 and mean real WTA was $63 (Bishop and Heberlein, 1979). In another, mean hypothetical WTP was $32 and mean real WTP was $24 (Bishop and Heberlein, 1986). 138 ROBERT S U G DEN Thus, it seems that there may be a systematic discrepancy between hypothetical responses and real behaviour. If such a discrepancy exists, it undoubtedly poses a problem for CV research; but it need not be interpreted as evidence that responses are casual or insincere. People may be honestly reporting their beliefs about how they would respond to trading opportun- ities, were these to arise; but those beliefs may be systematically biased (for example, in a hypothetical context people may underestimate their aversion to giving up money). I suggest that observed diVerences between hypothe- tical responses and real behaviour are more plausibly explained by such eVects than by assuming that survey respondents act strategically. It seems reasonable to proceed on the working assumption that respondents in CV surveys make honest attempts to answer the questions they are confronted with. 5.5. THE LINK BETWEEN PREFERENCE AND CHOICE Respondents in CV surveys are typically presented with hypothetical scenar- ios within which they are asked to make choices. Even if we can assume that responses are honest, two diYculties must be overcome if we are to make inferences about individuals' preferences from the data generated by CV surveys. (A further problem, that preferences with the properties postulated by economic theory might not exist at all, will be considered in Chapter 6.) The Wrst diYculty is that the scenario has to represent a conceivable situation in which the respondent chooses between alternative combinations of money and the relevant good. In the case of a private good, the scenario can be based on the market. For example, a respondent may be asked to imagine that hunting permits are on sale at a price of $30, and to say whether or not he would buy one at that price. Most people have a vast amount of experience of buying private goods, and at least some experience of selling them; thus, they will Wnd a market scenario quite familiar. But the design of scenarios for public goods is less straightforward. The problem is to Wnd a context in which people make decisions as individuals about the supply of public goods. There seem to be two obvious candidates: voluntary contribu- tions to public goods, and voting on issues concerned with the supply and Wnance of such goods. The second diYculty is to Wnd a theory which connects preferences to choices of the kind described by the scenario . For private goods and market settings, economics oVers a simple theoryÐthat each individual maximizes utility, taking prices as given. Using this theory, we can infer preferences from choices made in markets, or from hypothetical choices made in market scenarios. If we are to elicit valuations of public goods, we need a corres- ponding theory of how individuals' decisions about voluntary contributions to public goods, or about how to vote, connect with their preferences. PUBLIC G O ODS AND CONTINGENT VALUATION 139 5.6. VOLUNTARY CONTRIBUTIONS TO PUBLIC GOODS Some signiWcant goods are Wnanced by the voluntary contributions of many individuals: think of the activities of humanitarian, educational, medical and environmental charities and pressure groups. Donors to such organizations make decisions which involve giving up private consumption in order to increase the supply of public goods. Decision contexts of this kind might seem to oVer suitable scenarios for eliciting preferences for public goods. However, it is surprisingly di Ycult to explain such voluntary contributions in terms of conventional economic theories of decision-m aking. In this section I shall examine these diYculties and the problems they create for CV research. A numb er of economists have tried to explain voluntary contributions to public goods by using variants of the model presented in Section 5.2. Each individual is assumed to have preferences over combinations of private and public goods; each individual chooses how much to contribute to public goods, maximizing her utility while taking prices and other individuals' contributions as given. The equilibrium state of the model is taken to be a representation of the real world (e.g. Schwartz, 1970; Becker, 1974; Arrow, 1981). More recent work, however, has shown that this type of theory yields implications which are clearly inconsistent with the facts of volunta ry giving. These implications are generat ed because, in the model, each individual regards other people's contributions to a public good as perfec t substitutes for her own. Thus, each individual's contribution is highly sensitive to changes in other people's contributions. Under reasonable assumptions about preferences, we should expect to Wnd that each individual reduces her own contribution by almost one dollar for every extra dollar contri buted by others; but we do not Wnd anything like this degree of responsiveness in reality (Sugden, 1982; Warr, 1982; Roberts, 1984). If real people behaved like the individuals of the model, virtually no one would contribute anything to public goods in a large economy (Andreoni, 1988). And if individuals became aware of the extent to which their contributions were interdepend- ent, the prospects for the voluntary supply of public goods would be still worse. Since each would know that a reduction in her own contributions would be almost wholly made up by increases in others' contributions, rational self-interest would lead each to try to take a free ride (Sugden, 1985). A further challenge to the conventional theory of public goods has come from experimental research. In a classic series of experiments, Marwell and Ames (1979, 1980, 1981) investigated the extent to which individuals are willing to contribute to public goods. In a typical experiment, subjects were assigned to groups, within which interaction was anonymous (groups did not meet; all interactions were via the experimenters). Each subject was 140 ROBERT S U G DEN [...]... Else? Experiments on the Provision of Public Goods, IV', Journal of Public Economics, 15: 295±310 Mitchell, R C., and Carson, R T (1989), Using Surveys to Value Public Goods: The Contingent Valuation Method, Resources for the Future, Washington Mueller, D C (1989), Public Choice II, Cambridge University Press Roberts, R D (1984), `A Positive Model of Private Charity and Public Transfers', Journal of Political... Agricultural Economics, 61: 926±30 ÐÐ and Ð (1986), `Does Contingent Valuation Work?' in R G Cummings, D S Brookshire, and W D Schulze (eds.), Valuing Environmental Goods, Rowman and Allanheld, Totowa, NJ ÐÐ Heberlein, T A., and Kealy, M J (1983), `Hypothetical Bias in Contingent Valuation: Results from a Simulated Market', Natural Resources Journal, 23: 619±33 Brennan, G., and Buchanan, J M (1984), `Voter... 99±107 Hill, R J (1981), `Attitudes and Behavior', in M Rosenberg and R H Turner (eds.), Social Psychology: Sociological Perspectives, Basic Books, New York Hoehn, J P and Randall, A (1987), `A Satisfactory BeneWt±Cost Indicator from Contingent Valuation' , Journal of Environmental Economics and Management, 14: 226±47 Kahneman, D., and Knetsch, J L (1992), `Valuing Public Goods: the Purchase of Moral Satisfaction',... ÐÐ and Lomasky, L (1985), `The Impartial Spectator Goes to Washington: Toward a Smithian Theory of Electoral Politics', Economics and Philosophy, 1: 189±211 Clarke, E H (1971), `Multipart Pricing of Public Goods' , Public Choice, 11: 19±33 Collard, D (1978), Altruism and Economy, Martin Robertson, Oxford Douglas, M., and Isherwood, I (1979), The World of Goods, Basic Books, New York Grether, D M and. .. `Experiments on the Provision of Public Goods, I Resources, Interest, Group Size, and the Free Rider Problem', American Journal of Sociology, 84: 1335±60 ÐÐ and Ð (1980), `Experiments on the Provision of Public Goods, II Provision Points, Stakes, Experience, and the Free Rider Problem', American Journal of Sociology, 85: 926±37 PUB LIC G OODS AN D C ONT ING EN T V AL UAT ION 151 ÐÐ and Ð (1981), `Economists... for Public Good Decisions', American Economic Review, 70: 584±99 Sugden, R (1982), `On the Economics of Philanthropy', Economic Journal, 92: 341± 50 ÐÐ (1984), `Reciprocity: the Supply of Public Goods through Voluntary Contributions', Economic Journal, 94: 772±87 ÐÐ (1985), `Consistent Conjectures and Voluntary Contributions to Public Goods: Why the Conventional Theory Does Not Work', Journal of Public. .. Bargaining', Journal of Economic Behavior and Organization, 3: 367±88 Hargreaves Heap, S P (1989), Rationality in Economics, Blackwell, Oxford Harsanyi, J C (1982), `Morality and the Theory of Rational Behaviour', in A Sen and B Williams (eds.), Utilitarianism and Beyond, Cambridge University Press Heberlein, T A., and Bishop, R C (1986), `Assessing the Validity of Contingent Valuation: Three Field Experiments',... Brennan, Buchanan, and Lomasky, is that voters may be inXuenced by norms of fairness and reciprocity When people make voluntary contributions to public goods, they may be motivated by moral rules which prescribe, for each individual, a fair share of the total cost of providing a public good (see Section 5.6) Thus, when comparing two alternative options A and B, where A is the status quo and B is some mix... Altruism and Donations to Public Goods: a Theory of WarmGlow Giving', Economic Journal, 100: 464±77 Arrow, K (1981), `Optimal and Voluntary Income Distribution', in S RosenWelde (ed.), Economic Welfare and the Economics of Soviet Socialism: Essays in Honor of Abram Bergson, Cambridge University Press ÐÐ Solow, R., Portney, P., Leamer, E., Radner, R., and Schuman, H (1993), Report of the NOAA Panel on Contingent. .. (Sugden, 1984) In these theories, private contributions to public goods are motivated by people's moral commitment to rules which they see as fair Thus, contributions to public goods do not reveal the donors' preferences in the same direct way that decisions to buy private goods do What is revealed is the combined eVect of the donor's own preferences, her beliefs about fair rules for costsharing, and . 5 Public Goods and Contingent Valuation Public Goods and Contingent Valuation ROBERT SUGDEN ROBERT SUGDEN 5.1. PUBLIC GOODS Many applications of the contingent. the public goods problem. For example, consider a presidential election with two candidates, PUBLIC G O ODS AND CONTINGENT VALUATION 145 X and Y, and an